A Psychological Understanding of Credit Damage

There are many factors to consider when repairing bad credit. Among them is the possibility that our individual predicament may be attributed to personal traits that are similar to those found in addictive personality disorder. Don't get me wrong. The present economic situation of the world - rising costs of just about everything from taxes, to transportation and groceries, to say nothing of emergency situations - puts us all on the edge of financial ruin at any given moment. The option that I'm offering here is that there may be more to consider here than simply "repairing our credit".

This analysis must first be given an overview of the psychological viewpoint of addictive personality disorder. There is no distinctive diagnosis of this type of disorder in the DSM-IV (the Diagnostic and Statistical Manual for Psychological Diseases), but is instead broken up over a variety of symptoms related to personality and impulse control disorders. These traits are developed over the course of our lifetimes, and are rooted in adolescence and early adulthood. Bear in mind that this analogy is based in the more commonly accepted traits found in antisocial and emotional disorders. The comparison that I am attempting to make in relating this to credit damage is in the basic nature of society as a whole. Social mores determined that much of our worth is given to our physical possessions as a measure of our standing in that society. The "traits" that promote these achievements (or possessions) determine our place in society. We "need" to have things - a new car, a better home, a better job with more money, etc. - and there is nothing actually wrong with this outlook. It is human growth and nature. Where it becomes dangerous to our financial stability is when our impulse control overcomes our means to afford these "needs". This is the point where many begin to fall into the pit of bad credit. The present "Credit is King" mentality is the perfect vehicle to promote this path. How many times have we heard offers to have something now, and not have to pay for X amount of months? The problem is, payment will still come due.

This scenario all leads to the solution to this problem of damaged credit. If any of this sounds familiar, then the answer may lie in viewing credit repair from a recovery standpoint. Any recovery program, be it alcohol or drugs, gambling, sex, or any other, is centered in first admitting the problem and then replacing old habits with a step-by-step approach to building new and more appropriate habits. Regaining some sense of manageability in our lives involves focusing our will into something beyond ourselves, in this case some type of credit repair group program. Whether this program takes the form of a software program, or lawyers or an organization specializing in credit repair, this is similar to having a sponsor to guide us in our attempts. Getting a credit report with a FICO score is like taking a personal inventory and gaining insights into where our amends will be made. Beyond all of this are the steps in which we continue to grow on a day by day perspective to enhance our growth by maintaining our financial stability and living within our means. This is tough, but looking at it from another angle, status is also obtained through the personal traits - focus, organization, determination - needed to obtain that status. "Rock-bottom" may be an ending, but every ending can be viewed as a new beginning. Succeeding in this endeavor may be the catalyst to developing the skills needed to grow beyond our present means. That "first step" is important in that it opens a door to a new way of looking at things and new options to consider. Who knows where such options may lead! As we systematically grow beyond the fear, doubt, and frustration surrounding poor credit, we open ourselves to new opportunities and possibilities. If these possibilities are tempered and balanced by the memory of hard times, we can better appreciate what we have gained.

So, what's the point of all this? Simply that, in most cases, it's our actions and decisions that lead us to where we are, despite what is happening around us or even to us. We are not so much victims of circumstances as we are victims of our reactions to those circumstances. There are always other options and choices available at any given moment, and until we face our responsibility in our present situation, in this case our financial stability, or lack thereof, can we begin to change things. As they say seize the moment and you may be surprised.

Debt Education Is the Key

Are we really educating the next generation and giving them the tools to be able to progress in life with a solid knowledge of finance and a future free from debt?

There have recently been reports in the media with regards to educating the next generation on how to handle their finances and generate knowledge of the debt advice and the solutions available.

I was lucky and had parents who believed you needed to earn treats and if pennies were limited - our treats were cuddles! You soon learn the value of money when it is earned through chores. When I got my first full time job I was expected to pay my way. It was "tough love" and my 3 year old daughter is learning this too - although she is sometimes way too smart - she points to my purse and says "Mummy has got pennies for sweeties"!

It is only going to get tougher with our young generation facing much higher university fees, plus their parents coping with earnings declining in real terms. Rising utility bills, hikes in car insurance, higher pension contributions and on it goes. At the end of May 2011 UK personal debt stood at £1,452bn up more than £800BN than 10 years ago.

It is hardly surprising Payday loans are a massive growth industry as are sites inviting you to flog your gold. Money has become a rare commodity and when you are faced with not being able to put food on the table or pay the rent, many through caution to the wind and borrow the money at ridiculous interest rates.

We have a great rescue culture in the UK for helping those who have overcommitted and are in need of debt help and advice with their finances. Solutions range from debt management plans to IVA and bankruptcy. Debt Solutions are tailored to each individual need and they need to be carefully considered. There are helpful debt calculators available to help budget and assess where money is going.

It is not just consumers that are struggling with their finances in today's market, businesses are also struggling. As a result of spending cuts and the rise of VAT, consumers are restricting their spending which means that businesses are seeing a decline in trade and this is hurting their sales and cash flow.

There are also solutions available for businesses in need of business debt help such as a CVA, liquidation, administration and informal turnarounds.

Fix Your Finance With Debt Settlement

Knowing you're in debt can give you a feeling of despair. And it may not be, because of careless spending or frivolous and extravagant purchases on unwanted items. It may just be a case of bad luck, where you have been laid off and your savings have dried up and there is no other option but to obtain credit. The bills may pile up because you're thinking that before it gets any worse you will have a job and make the repayments. We all know that plans go awry and then before you know it, you are drowning in debt. This does not have to be a bleak end for you, there are programmes designed to manage your debt allowing you to make low and affordable repayments.

One of these aforementioned programmes is called debt settlement. Debt settlement is of no cost to you, which you would find out on your first initial meeting with a debt counsellor. Their tailored services offer a step by step guide starting from where you are to where you need to be and how to get there. They handle all your financial issues and instruct your creditors on your behalf.

With every service there is sometimes an individual that you will not mesh well with, if this is the case with your first debt advisor do not stop there. Continue your quest to alleviate your debt and request someone else to get you on the track where you need to be. Provide your counsellor with every detail that they have requested, from credit card statements to the most insignificant bill that you can think of. With this information the debt counsellor can now start to build a case and start communication with your creditors.

When this communication starts, your debt counsellor would try and lessen your debt from what it was at the start. This is the period where you would feel the weight drop off your shoulders and a sense of ease sinking in.

If the negotiations go well, and your discussions with your debt counsellor are final and you agree with what he is brought back to you. Then the next step is for a repayment amount to be arranged. This amount is actually based on your expenses and what you can afford; the repayments would not be greater than your income coming in. That's why it is good to have a counsellor in these consultations because creditors don't have your best interest at heart; they just want to get their money back.

UK Personal Debt Figures Fall

The Government has released its latest official debt figures which show a surprising fall in the number of people who are struggling with debt problems.

The most recent figures from the Government's Insolvency Service have shown that the number of people formally struggling with their debt has fallen slightly compared to the last quarter and by 11% year on year.

A closer inspection of the personal debt figures shows that the number of people using the debt relief order solution continued to rise.

The number of people using the IVA debt solution stayed static year on year but there was a marked rise from last quarter with just over 13000 starting individual voluntary arrangements.

However the most startling figure was a drop in the number of people declaring themselves bankrupt. The numbers fell 31% year on year.

Why is the number of bankruptcies falling?

It is unclear why the number of people declaring themselves bankrupt has reduced so dramatically particularly as it is arguable that the bankruptcy process is the most lenient in Europe.

One of the key factors which may be affecting the figures is the high cost of declaring bankruptcy.

As of the 1st June 2011, an individual now has to pay £700 to the Court on the day they go bankrupt.

This cost can be reduced to £525 for people on low incomes however even then it is a significant sum to have to find if you are struggling with money to the extent that you need to declare bankruptcy.

These costs have lead to calls for the government to consider a reduction in the cost of bankruptcy.

Confusing picture

The fact that the number of personal debt problems is falling seems strange given the backdrop of the current economic situation in the UK.

The cost of living has soared and we have learned today that unemployment has now reached a total of 2.62 million or 8.3%. This is the highest number of unemployed people since 1994.

Given this situation it would make sense if personal debt figures were increasing.

One reason for the dichotomy is that since 2008 and the onset of the credit crunch banks have been lending significantly less to individuals. With people borrowing less, there is less chance for them to build up new debt problems.

Another significant factor is low interest rates. While these are agonising for savers, those with mortgages to pay are reaping rewards with mortgage payments some of the lowest they have ever been.

If your monthly mortgage payment has been halved, this goes a long way to offset increasing living costs elsewhere.

What predictions for the future?

Given the bleak economic picture, it is easy to simply say that we should expect personal debt problems to get worse.

It looks as though unemployment is set to get worse before it gets better with the government growth forecast now reduced to just 1 percent in 2012.

If more people start to lose their jobs we could see increasing numbers of people struggling to pay their debts.

However the debt statistics will be contained while interest rates remain on hold.

Low interest rates equal low mortgage payments and this is offsetting other cost of living increases for many people. As such, those who remain in work are likely to be able to maintain their debt repayments.

In this environment, predictions about UK debt statistics are increasingly hard to make.